Vietnam: Which debts can be converted into equity of financial companies?

According to Article 7 of the Circular No. 91/2020/TT-BTC of the Ministry of Finance of Vietnam, the whole increase in value of investments and financial assets according to the book value, excluding the securities specified in Clause 7, Article 5, Clause 5, Article 6 of this Circular, shall be calculated according to the difference between the book value and the market price determined according to Appendix II enclosed herewith. The debts which can be converted into equity include:

* Convertible bonds, except for those considered liquid capitals specified in Point c, Clause 1, Article 4 of this Circular and preferred stocks issued by a securities-trading organization which satisfy all of the following conditions:

- The initial term is at least five (05) years;

- They are not secured by assets of the securities-trading organization;

- The securities-trading organization may only early redeem these bonds and stocks at the request of the holder or redeem them on the secondary market after informing the State Securities Commission (SSC) as prescribed in Clauses 5 and 6 of this Article;

- The securities-trading organization may stop paying interests and transferring accumulated interests to the subsequent year in case the payment of interests causes business losses in the year;

- In case of dissolution of the securities-trading organization, payment may be made to the bond and stock holder only after the securities-trading organization pays debts to all other secured and unsecured creditors;

- The interest rate, including the interest rate and the reference interest rate added shall only be increased after five (05) years after the date of issuance and increased once throughout the term before these preferred stocks are converted into common stocks;

- They have been registered liquid capital as increases in liquid capital as prescribed in Clause 4 of this Article.

* Other debt instruments which satisfy all of the following conditions:

- It is the debt which shall, in any circumstances, be paid to a creditor after the securities-trading organization has paid debts to other secured and unsecured creditors;

- The initial term is at least ten (10) years;

- They are not secured by assets of the securities-trading organization;

- The securities-trading organization may stop paying interests and transferring accumulated interests to the subsequent year in case the payment of interests causes business losses in the year;

- The securities-trading organization may early pay debts to the creditor after informing such to SSC as prescribed in Clauses 5 and 6 of this Article;

- Increases in interest rates: Fixed interest rates, including the reference interest rate, shall only be increased once after five (05) years from the issuance date or contract conclusion date throughout the term of the secondary debt; For interest rates calculated by a formula, the formula must not change and the value in the formula may only be changed once after 05 years from the issuance date or contract conclusion date;

- They have been registered liquid capital as increases in liquid capital as prescribed in Clause 4 of this Article.

View more details at the Circular No. 91/2020/TT-BTC of the Ministry of Finance of Vietnam, effective from January 01, 2021.

Le Vy

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